Direct premium written (DPW) for property/casualty insurance companies continues to increase, albeit gradually. At year-end 2015, more than $582 billion of DPW was reported. For 2016, total DPW for all P/C insurers aggregately increased 4 percent over 2015, an increase of $23.4 billion. More than 60 percent of this premium growth is attributed to the Top 25 P/C insurers in terms of growth.
For the 12 months ending Dec. 31, 2016, P/C companies comprising the Top 25 insurers leveraged their experience and increased their DPW nearly 14 percent over 2015, or $14.1 billion. In contrast, the remainder of the industry reported an increase in DPW of 1.9 percent, or $9.2 billion, year over year.
It is important to note that while increasing DPW, P/C companies have aggregately maintained a sufficient level of policyholders’ surplus (PHS). One measure that indicates P/C companies are conservatively leveraged is the DPW to PHS ratio. An insurer’s DPW to PHS ratio is indicative of its premium leverage on a direct basis, without considering the effect of reinsurance. Since 2010, this ratio for P/C companies has remained stable at approximately 70 percent.
Although the market continues to exhibit signs of firming and DPW continues to increase, P/C insurers should not expect a traditional hard market in the near future. It is possible that the double-digit premium growth experienced in the historical hard market cycles may have created unrealistic premium growth expectations for this current recovery.
It is more realistic that expectations should relate to gradual, stable growth. If the industry continues to hold to its 10-year historical pattern, growth in 2017 would again result in the highest level of year-end DPW ever reported by the P/C industry.